Pension Sustainability: Florida

Pensions Policy

Look at National Findings

Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Nearly meets goal

Suggested Citation:
National Council on Teacher Quality. (2017). Pension Sustainability: Florida results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/FL-Pension-Sustainability-80

Analysis of Florida's policies

As of July 1, 2015, the most recent date for which an actuarial valuation is available, Florida's teacher defined benefit pension plan is 89.4 percent funded, an increase of 0.9 percentage points since NCTQ's last report. Its current pension debt exceeds $2,000 per pupil throughout the state. Florida also has an amortization period of 26 years. This means that if the plan earns its assumed rate of return of 7.65 percent and makes its full actuarially determined contribution payments, it would take the state 26 years to pay off its unfunded liabilities. Both levels are better than regulatory recommendations, and Florida's system is financially sustainable according to actuarial benchmarks. Further, Florida's defined contribution plan is fully funded and sustainable. E
mployers make mandatory payments credited to teachers' individual accounts.

Florida does not commit excessive resources toward its teachers' retirement system. The current employer contribution rate of 6.21 percent to the defined benefit plan and 3.30 percent to the defined contribution plan are both reasonable, in light of the fact that local districts must also contribute 6.2 percent to Social Security. The rate is determined according to statutory requirements, which mandate that the employer contribution rate must be equal to an actuarially determined rate in order to provide sufficient assets to pay benefits when due. All employees contribute 3 percent to their choice retirement plan.

Recommendations for Florida

State response to our analysis

Florida did not respond to repeated request to review this analysis.

Updated: December 2017

Pension Neutrality

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Research rationale

Many states' pension systems are based on promises they cannot afford to keep. Teacher salaries are just one part of the compensation package that teachers receive. Pensions, upon vesting, provide compensation for teachers the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, many teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system,^{^[1]} an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.^{^[2]}

Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices.^{^[3]} Without reform, funding is unlikely to keep up with promised benefits and these systems will become increasingly vulnerable to collapse.

Pension plans disadvantage teachers early in their careers. By overcommitting employer resources to retirement benefits, these plans often require districts to depress salaries and restrict incentives. The contribution of employers to their workers' retirement benefits is a valuable benefit, important to ensuring that individuals have sufficient retirement savings. Compensation resources, however, are not unlimited, and they must fund both current salaries and future retirement benefits. Mandated employer contributions to many states' teacher pension systems are extremely high, leaving districts with little flexibility to be more innovative with their compensation strategies.^{^[4]} Lower mandatory employer contribution rates (in states where they are too high; in some states they are shamefully low) would free up valuable compensation resources to ensure pension systems are more sustainable and equitable for all teachers. In addition, some states require high employee contributions; the impact this has on teachers' paychecks may affect retention, especially early in teachers' careers.^{^[5]}

The burden placed on districts to fund unsustainable pension systems is further exacerbated for those in states where teachers also participate in Social Security, requiring the district to pay even more toward teacher retirement. While retirement savings in addition to Social Security are necessary, states are mandating contributions to two inflexible plans rather than permitting options for teachers or their employing districts.^{^[6]}

^{^[1]} Doherty, K. M., Jacobs, S., & Lueken, M. F. (2017, February). Lifting the pension fog: What teachers and taxpayers need to know about the teacher pension crisis. Retrieved from National Council on Teacher Quality website: https://www.nctq.org/dmsView/Lifting_the_Pension_Fog
^{^[2]}For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
^{^[3]}NCTQ's analysis of the financial sustainability of state pension systems is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office. (2007). Government Accounting Standards Board statement No. 25. Retrieved from http://www.gasb.org/st/summary/gstsm25.html
^{^[4]}Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
^{^[5]}For further evidence supporting NCTQ teacher pension standards, see The Segal Group, Inc. (2010). Public employees' retirement system of the state of Nevada: Analysis and comparison of defined benefit and defined contribution retirement plans. Retrieved from https://www.nvpers.org/public/executiveOfficer/2010-DB-DC%20Study%20By%20Segal.pdf
^{^[6]}For additional information on state pension systems, see Loeb, S. & Miller, L. (2006). State teacher policies: What are they, what are their effects, and what are their implications for school finance? Stanford University: Institute for Research on Education Policy and Practice. Retrieved from http://web.stanford.edu/~sloeb/papers/Loeb_Miller.pdf; and Hansen, J. (2008, May). Teacher pensions: A background paper. Committee for Economic Development. Retrieved from http://eric.ed.gov/?id=ED502293

State Teacher Policy